PAYE proposals could lead to cashflow problems in recruitment industry

PAYE proposals could lead to cashflow problems in recruitment industry

Employers will have to send information monthly rather than yearly
Fears HMRC will collect tax same day as payroll

New proposals from HM Revenue & Customs (HMRC) to overhaul the PAYE system could exacerbate cashflow problems in the recruitment industry, warns giant precision, the workforce management solutions provider to the recruitment industry.

HMRC is proposing to collect Real Time Information (RTI) on employees pay and tax every pay run rather than at the end of the tax year as is the current practice. Employers will be required to submit the information to HMRC as part of the payroll BACs payment. HMRC intends to begin introducing RTI in 2012.

The introduction of RTI will impose significant costs on recruiters who run their own payroll as many will not be set-up to provide information to HMRC on a each pay run basis.

According to giant precision, the logical next step for HMRC after introducing RTI will be to force employers to pay HMRC the PAYE tax and NI deducted at the same time as employees are paid on each pay run. At the moment, employers normally pay employees weekly or at the end of the month, but only pay deductions to HMRC on the 19th or 22nd of the following month, giving them a significant cashflow boost.

Recruiters often sit at the end of long supply chains and have to pay their employees before they have been paid by their clients, the end users of these employees. This exposes them to considerable cashflow risks. Having to pay HMRC the same day as employees are paid, rather than the 19th or 22nd of the following month, will strain cashflow even further, says giant precision.

Matthew Brown, Managing Director of giant precision, comments: The transition to real-time information will impose significant one-off costs on recruiters who run their own PAYE payroll.

The concern is that real-time information will be a slippery slope. Once employers are providing information on pay and tax with the BACs payment on each pay run, HMRC will argue that it makes sense for the tax and NI deducted be paid at the same time as the payroll, rather than on the 19th or 22nd of the following month.

Cashflow is a major concern in the recruitment industry. Any move to bring forward the due date for deductions from the 19th or 22nd of the following month to the same day as the payroll will cause a serious headache for recruiters.

He adds: Many recruiters are already grappling with cashflow problems caused by pay when paid clauses inserted into contracts by recruitment process outsourcing companies. These PAYE proposals will only add to their woes.

In a previous consultation in September, HMRC proposed that it should take on the role of a payroll bureau for the entire UK workforce. Instead of employers paying their own employees, HMRC would collect gross pay from employers, make calculations, and pay employees their net pay. Deductions for tax would be kept by HMRC.

According to giant precision, some of the less financially stable umbrella companies rely on the cashflow generated from employee tax and NI deductions to pay other creditors. These payroll proposals will make these umbrella companies even less financially stable.